I'd hire a professional mediator - like, now. Someone who works with an estate attorney maybe, or just someone who deals with wealthy families (rather than the court-appointed mediator folks who work out how much redneck Cletus owes to the body shop).
A neutral party can go a LONG way toward resolving this sort of thing without ruining relationships, and it's not expensive (at least in the grand scheme of things). It sounds like several people involved are maneuvering to put one over on everyone else, and you've got mental health issues, people who are connected at different levels in the family, previous "gifts" and misperceptions of same, etc.
But yes, you should just wash your hands of the house, probably, regardless. No fixing up (too easy to disagree about what/how/who fixes), no using the house for "just a few years", etc. You don't want to get to the point where you wish you didn't even own it, and you can get there faster than you think.
RE and family... it just sucks. My parents and I went in together on a condo when I started grad school, with the understanding that I could purchase it from them at any time for the mortgage balance+closing costs, once I had sufficient credit to do so (I should have gotten a credit card when I was younger, c'est la vie). In the 5 year interim, my mother died and my father's personality changed dramatically. He took $50k of equity out of the condo in a refinance (I was paying the mortgage/insurance/taxes the entire time we owned it) and told me my "rent" was going up. After a few months of panic and angry phone calls, we purchased the condo at a "deal" for about $100k more than the mortgage balance (but under the market price). He literally cost my wife and I our entire net worth when we were in our 20s. We have never spoken since (and he's never met his grandchildren), and even though I feel like I did nothing wrong, it still keeps me up at night sometimes. Horrible all around.
Don't let something like that happen to you guys. You can keep yourself from getting screwed over AND keep your relationships, if you do it right.
-W